With drugs representing the fastest growing component of US healthcare spending, initiatives like the Inflation Reduction Act have taken direct aim at reducing drug costs. However, in addition to Federal action, the state of California has announced its own plans to address skyrocketing drug prices with the CalRx initiative.
CalRx is an innovative option aimed at improving drug affordability, by creating a State of California program to develop generic drugs and sell them at low cost. Through state-led manufacturing, CalRx will augment markets that are unable to deliver affordable medications for California residents by focusing on increased generic manufacturing to address market failures such as drug shortages and low competition.
CalRx’s first drug priority will be insulin which has been receiving significant national attention as one of the most needed areas for access and cost improvement. Insulin inaccessibility affects the 10.7% of Californians with diabetes — roughly 200,000 of whom are uninsured or underinsured — and disproportionately harms low-income, Black and Latino Californians. For uninsured consumers and insured consumers with high deductibles, a five-pen pack of insulin (roughly a month’s supply) can cost well over $500, crowding out household budgets for other necessities, such as housing and food.
Inaccessibility often leads to the practice of rationing or skipping insulin doses which can result in poorly regulated blood sugars and contribute to severe disease, such as diabetic ketoacidosis, renal failure and neuropathies that lead to limb loss. This can also result in increased costs due to inability to work and increased hospitalizations and medical care needs.
With the CalRx Biosimilar Insulin Initiative, California will invest $50 million to develop the most popular short- and long-acting types of insulin. An additional $50 million will be used to support the construction of an insulin manufacturing facility in California. If all goes according to plan, these insulin products could reach pharmacies, retailers and other channels, such as mail-order pharmacies, in the next two to three years.
Independent analyses by experts at Johns Hopkins have found that savings for payers — such as employers and health care plans — and patients would be substantial. Uninsured and underinsured people living with diabetes could reduce their annual out-of-pocket costs by up to 90%. On the payer side, commercial insurers could reduce insulin expenditures by up to 66% — slowing the trend of annual health premium increases that fall on the shoulders of workers and employers and passing those savings on to employers and enrollees through lower premiums and/or lower cost-sharing for drugs.
CalRx insulin products have the potential to introduce significant price competition and help shift the market from less transparent, rebate-based pricing toward low, transparent pricing. As a unique first-of-its-kind project utilizing state capital to address a severe market failure the CalRx program will be an interesting project to keep an eye on over the next 2-3 years to see if it is able to positively change insulin market dynamics.